Viewed in the context of the financial services, the word “FActor” stands for “Financial-Actor”. In the true spirit of an Actor, Factor wears many hats under different roles performed by him. Box I depicts the diverse roles a Factor plays. But who is a Factor? And what business is he into, how does he conduct his business, where does he fit within the financial services industry and what impedes the growth of factoring in India? This article is an attempt to revisit the varied facets of the factoring business. In short, Factoring is simply the purchasing of accounts receivables to provide working capital. The Factor purchases the interest in supplier’s receivables or invoices at a nominal discount. Factoring firms thus operate on the “buy-side” of financial services industry as they purchase receivables of their clients as opposed to “sell-side” firms like banks that give loans using receivables as collateral.

Factoring, however, is much more than just the provision of funds. Rather, it is a composite product offering a mix of finance, credit insurance and financial management services. Factoring is essentially one of the structured financing techniques, which is the art of transferring risks in trade financing from parties less able to bear those risks to those more equipped to bear them in a manner that ensures automatic reimbursement of advances from the underlying assets. This also explains why Factors are subjected to risks that range far from those facing the banks? So what should factoring entities do to survive and thrive? They must have an adequate capital base, right marketing and business development strategy for their products, an exhaustive, yet fast and flexible, due diligence process for assessing the collectibility of debt, robust risk management system and most importantly, an established mechanism of getting their money back along with reasonable returns for their efforts.

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